The care of 40 million Medicare beneficiaries may be changed significantly in upcoming years as a result of the Medicare Modernization Act of 2003 (MMA). As Medicare moves to improve both the efficiency and quality of care physicians provide to Medicare beneficiaries in the fee-for-service (FFS) program, modifying financial incentives aimed at physicians will be one of Medicare's most important policy levers. Until recently, Medicare's tool bag for manipulating financial incentives was limited. The Centers for Medicare and Medicaid Services (CMS) is now exploring additional financial incentives to encourage more cost effective and higher quality care. In order to guide the development of these policies, it is critical to have a more general understanding of the components of a physician's practice pattern that are most influenced by Financial incentives. With regard to financial incentives, there is a growing knowledge base about how practices of physicians have changed over the past two decades (e.g., more large group practices) and how different types of financial arrangements are structured between physician groups and insurers or health plans. Much less, however, is known about the ways individuals are compensated or the effect of these alternative arrangements on cost or quality. Without this basic knowledge to use as a building block, experiments with individual financial incentives might have unintended consequences. The results from this study will inform the policy debates that occur for traditional fee-for-service Medicare beneficiaries, particularly with regards to the implementation of pay for performance and other similar programs that rely on incentives. The proposed study seeks to take advantage of the largest and most timely national survey of physicians, the Community Tracking Study physician survey. The study will build upon new data that are being collected from ~7,000 direct patient care physicians for the fourth round of the survey. These data will then be linked with data from the Centers for Medicaid and Medicare Services on the care delivered to Medicare beneficiaries being cared for by these physicians over a three year period to create an unparalleled data set for addressing several issues related to payment and cost/quality for Medicare beneficiaries. The overall goal of this research is to assess empirically the impact of physician financial incentives on the costs/efficiency and quality of care for Medicare patients treated between 2004 and 2006. Because patients will be clustered within physicians and physicians clustered within markets, we will use hierarchical analytic methods.